Inflation rate plummets to 9.5%
January 29, 2009
By Ethel Hazelhurst
Johannesburg - A sign that consumer inflation will fall sharply this year came yesterday, with the publication of data that showed prices fell over the festive season.
The consumer price index (CPI) fell 1.1 percent month on month in December, according to Statistics SA, largely because petrol prices fell 18.3 percent.
Measured over 12 months, CPI inflation came in at 9.5 percent last month, down from 11.8 percent in November and a peak of 13.7 percent in August.
The latest figure is below expectations: 20 economists surveyed by Bloomberg predicted CPI inflation of 10.6 percent, while a Reuters poll of 19 economists forecast 9.9 percent.
CPI inflation averaged 11.5 percent last year, compared with 7.1 percent in 2007.
CPIX (CPI minus mortgage costs) fell 0.9 percent in the month and rose 10.3 percent over 12 months. The annual rate moderated from 12.1 percent in November, but remained well above the 6 percent ceiling of the Reserve Bank's target range, where it has been since April 2007.
Economists expect CPI inflation, which will replace CPIX as the benchmark index from this month, to fall within the target range by midyear. The rapid reduction in inflation is in line with global trends. US inflation fell close to zero last month.
The latest figure gives the Reserve Bank scope to cut the repo rate sharply next week. It made a half percentage point cut last month after a 5 percentage point hike that started in June 2006.
Some argue sharp rate cuts are urgently needed. Money market rates are pricing in a full percentage point cut next week, according to Ian Cruickshanks, the head of strategic research at Nedbank Capital.
Jeff Gable, Absa Capital's head of research, said yesterday that South Africa was already in recession. He estimated the economy shrank by 0.5 percent in the fourth quarter of last year and would shrink nearly 1 percent this quarter.
Inflation for this month is estimated by some economists to be running at 7 percent, partly due to the underlying trend and partly due to technical factors.
The December data are the last to be based on Stats SA's 2002 basket of goods and services. From this month, its reweighted and rebased basket is expected to cut inflation further because of the reduced role of food. Food prices rose 17.1 percent year on year in December.
According to Patrick Kelly, the executive director for CPI at Stats SA, the weighting of food will fall to 20.19 percent in the new basket from 26.8 percent.
While food prices at the farm gate are falling, consumer food inflation is proving "sticky", according to Danelee van Dyk, an economist at Standard Bank. "It may take at least a further four months before prices moderate to pre-2007 rates of increase."
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